2 Objective To identify the optimal policy for the integration in the South America s NGI using a mathematical model that allows to identify NG flows among different nodes that minimize total costs (production and transmission) for the region. april 2008 Neder-Valquez-Ceballos Ferroglio 2

3 Importance of Integration Integration is a process by which two or more countries start doing complementary actions, and barriers that could have existed start removing. In South America energy integration was thought mainly from hydroelectricity. NG market appears as an alternative and now the accent is put on it. Integration is weakening as a consequence of the political and economic project embodied in the countries. There is a need to restart discussing how important integration is. april 2008 Neder-Valquez-Ceballos Ferroglio 3

4 Regional Analysis Factors fostering integration of the NG market: Seasonal Complementarity between the three major consumer markets (Argentina, Brazil, and Chile). Significant development of the existing pipeline network linking the countries of the region. Liquefied Natural Gas, an alternative way of promoting NG integration. april 2008 Neder-Valquez-Ceballos Ferroglio 4

8 Constraints 1. Node equilibrium The Model m x ij = i=1 For all j = 1,2,, m 2. Production capacity in each basin x a ii i For all i = 1,2,, m a i= maximum of NG production in basin i. april 2008 Neder-Valquez-Ceballos Ferroglio 8 D j

10 The Data Production Capacity: annual volume of NG that may be produced not to exhaust proven reserves for a time horizon of analysis. Domestic Demand: annual volume of domestic consumption for the calibration year, adjusted by an interannual growth rate applied to the horizon analysis. april 2008 Neder-Valquez-Ceballos Ferroglio 10

11 The Data Transmission Capacity: maximum volume (MMm 3 /day) of NG that can be transported between nodes. Transmission Costs: for each route, expressed in US$ per MMm 3 /day. april 2008 Neder-Valquez-Ceballos Ferroglio 11

12 Results We analyze four cases (basis case, demand growth, peak consumption and NG growth related to GDP). Base year for the calibration of the model and for doing forecasts: For each year under study, exogenous demands are verified in each node. april 2008 Neder-Valquez-Ceballos Ferroglio 12

18 Results: Demand Growth Demand Adjusted in each node using the geometric average of its annual growth rate observed in each country in the last five years. Model run for 2010 (considering constraints at the time of calibration) Obstacle for integration? april 2008 Neder-Valquez-Ceballos Ferroglio 18

20 Results: Peak Consumption Average demand is adjusted for the year of calibration by a specific load factor for each country. Simultaneity peak consumption for different categories of consumers is assumed. april 2008 Neder-Valquez-Ceballos Ferroglio 20

22 Results: Demand Growth related to GDP To forecast the NG demand growth, the GDP growth rate is used. Model run for 2010 (considering constraints at the time of calibration) Obstacle for integration? april 2008 Neder-Valquez-Ceballos Ferroglio 22

24 Concluding Remarks The Basis Case is a representative one (results adjust to the actual behavior of NG market). For the short run, the Peak Consumption Case (Winter Case) shows transport problems. When demand growth rates are applied, problems with transport and production emerge. When demand growth rates are related to GDP, we also have problems with transport and production, but in a less severe level. Different times in peak consumption (particularly considering Argentina, Brazil, and Chile) should encourage a better process of integration. april 2008 Neder-Valquez-Ceballos Ferroglio 24

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